Defensive stocks show deep value as cyclicals run hot, UBS says

“Healthcare equipment ranks number one on our global scorecard, and has had the highest growth outside tech, yet is now trading at a market multiple that has seen the sector outperform over the subsequent 3 months on all previous occasions,” UBS strategists said, highlighting opportunities in names like Alcon AG (NYSE: ALC), Boston Scientific Corp (NYSE: BSX), and Abbott Laboratories (NYSE: ABT). The team also favors defensive mid-cap European stocks such as BioMerieux and Fresenius, which offer strong free cash-flow yields and little tariff risk.

Pharma, meanwhile, is benchmarked but hard to overweight. The sector is trading at an unusually large discount versus the norm and remains the least loved major sector in Europe, even as earnings momentum continues to surprise to the upside. UBS notes that pharma typically outperforms when credit spreads widen and PMIs fall, but the team cautions dollar weakness and political pressure on pricing in the US could keep a lid on any rally.

“The elephant in the room remains if branded drug prices in the US went to European levels, pharma’s NPV would fall about 24%.”

The strategists argue that despite the noise around AI, tariffs and sector rotation, investors should stick with structural winners while being wary of overhyped cyclical recoveries that may not withstand a slowing global economy.